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Home Themes Private Credit

Credit Market Shakes: Are Corporate Bonds Still Worth It?

by Team Lumida
June 23, 2024
in Private Credit
Reading Time: 3 mins read
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Credit Market Shakes: Are Corporate Bonds Still Worth It?
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Key Takeaways:

  1. Corporate bonds are experiencing their worst month since last year.
  2. Goldman Sachs predicts positive returns despite spread widening.
  3. Experts suggest cautious positioning due to unattractive valuations.

What Happened?

Corporate bonds are facing a tough month, recording their worst performance since late last year. Spreads widened by about 10 basis points in June, as reported by a Bloomberg index. This shift comes after yield premiums on corporate bonds and US high-grade securities rose from May levels that were rarely seen since the 2008 financial crisis.

Goldman Sachs strategists, led by Lotfi Karoui, predict US high-grade spreads will settle at 90 basis points and junk spreads at 291 by year-end. However, current levels are 94 and 314 basis points, respectively.

Why It Matters?

You might wonder why these changes are significant. For investors, widened spreads often indicate less attractive credit investments compared to Treasuries. While some experts like Neeraj Seth of BlackRock believe this environment could still favor credit, others like Noah Wise from Allspring Global Investments are reducing exposure due to less attractive valuations.

This shift in strategy underscores a broader debate about the value of corporate debt in a fluctuating market. With the Federal Reserve likely to cut interest rates, corporate bonds could struggle to keep pace, making it essential to reassess your portfolio allocations.

What’s Next?

Looking ahead, Goldman Sachs remains optimistic, forecasting that both high-grade and high-yield bonds will outperform government notes this year. European junk securities may deliver 5% excess returns, while US equivalents could generate 3.7%. Despite this positive outlook, some experts advise caution.

Marvin Kwong of M&G Investments suggests focusing on shorter-dated bonds to manage risks better. Additionally, the Federal Reserve’s potential rate cuts could create opportunities in Treasuries or futures as yields decline. As you navigate these changes, keeping an eye on economic indicators and corporate fundamentals will be crucial for making informed investment decisions.

Source: Bloomberg
Tags: Corporate BondsCredit SpreadsInvestment Strategy
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© 2025 Lumida Wealth Management LLC is an SEC registered investment adviser. Privacy Policy. Cookies Policy.
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Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.

Any subsequent, direct communication by Lumida with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

‍Lead Capture Forms: By submitting your contact information in the forms on this site, you are not obligated to invest in Lumida's product or services.
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